Can investing in the stock market – even in stocks that seem monotonous, rather than in high-growth loved ones – really lend a hand someone improve their finances to the point where they can retire early?

Yes, maybe.

Of course, in practice this will depend on how much money they need for early retirement and how much they are able to invest.

An investment today can lend a hand finance your future plans

I will employ the Pensions UK industry group’s ‘Standards of Living for Pensioners’ as an example.

The standards suggest that for a single person outside London, the average pension cost is £32,700 a year. This number will likely augment in the future, but I’ll stick to it for this example.

How vast a stock portfolio is needed to generate £32,700 of income per year (in the form of dividends) will depend on the dividend yield achieved by the portfolio.

With a profitability of 3.1% (current FTSE100 on average), it would take £1.1 million. With a yield of 5%, it would drop to PLN 654,000. pounds. With a rate of return of 7%, this amount is PLN 467,000. pounds.

Setting realistic goals

The target profitability level of 7% is ambitious. But in today’s market, I see this as a realistic goal, even if I stick to proven, well-known companies.

One way may be to transfer these 467,000. pounds directly to an account intended for trading in shares.

However, most people don’t have that kind of cash on hand. In this case, building over time may be the best solution. Starting from a standing position, investing PLN 20,000. pounds a year into a stocks and shares ISA and increasing the interest rate to 7% a year, it would take 15 years to reach the target.

This would enable the 35-year-old to retire earlier. In fact, this would still allow a 45-year-old to retire before retirement age. Or even 50, at least by a few years.

One action to consider

Compounding at 7% per year is one thing. Getting this amount as a dividend yield (without taking into account capital growth as may be the case with compound annual growth) is another issue, although this is a bridge that you may not need to cross for 15 years.

So, more directly, what stocks are worth considering for the prospects of share price growth and dividend income?

One of them is a household goods seller Dunelm (LSE:DNLM).

Let’s start with the income opportunities, the share gives a juicy 5.6%. It also has a track record of paying special dividends in addition to regular payouts when it has spare cash.

Past dividends are not necessarily an indication of what to expect in the future. However, with a vast customer base, proven business model and plenty of unique products that can lend a hand differentiate it from competitors, I believe Dunelm can continue to generate significant cash surplus in the coming years.

If the company continues to perform well, I think it could potentially augment its share price. It’s down 46% in five years and is now trading at 11 times earnings.

I consider this an attractive valuation for a vigorous and profitable business such as this.

One risk I see is a severe downturn in the real estate market that will hurt demand for home furnishings. This could harm Dunelm’s revenues and profits.

On the other hand, it can actually augment sales if people decide to spruce up their existing homes.

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Christopher Ruane does not hold any position in the companies mentioned.